Careful mistakes you make!!

MISTAKES can be expensive. Ask the guy who looked at a beautiful girl crossing the road instead of looking at the car in front of him. His glance cost him over 1 lakh (Rs 100,000) in damages. But you could argue that this was a careless mistake. But what about the mistakes we make carefully?

Careful mistakes are the ones we make after long deliberation, wrong calculation leading to the wrong choice. And naturally these cost you more. Lets look at Insurance for instance.

Firstly, we need to be a clear about one point — Insurance is a cost. Whether one would want to incur this cost or not, and to what amount, is a matter of personal choice. And since it is a cost, the obvious thing to do is minimize the cost without sacrificing the basic life cover.

The big mistake
This is where the big mistake comes in: Pure-protection policies, where one doesn’t get anything back if one survives the policy term, are the ideal choice for the above objective. But psychologically, it is difficult for people to pay-up hard cash for an intangible product, ie security. So they go in for insurance products with returns.

Hence, moneyback and endowment (and of late Unit Linked Insurance Plans or ULIPs) type of policies are taken. But this is what they forget:

• The same amount that they would otherwise pay in a term policy also gets deducted from these so-called protection and investment policies. And only the net amount gets invested.
• The administrative costs are high
• Corpus is invested in very safe instruments
• Therefore, the returns from such policies are usually very low — usually in the range of 5-7% pa.

Naturally, a person would be better off taking a term policy to get the life cover and investing the balance premium amount say in PPF where he can earn 8% pa returns (assuming he wants no risk of investing in equity, where the returns can be much higher).

The mass exodus
As more people realise their mistake, they want to exit from such insurance policies. Unfortunately, early exit from insurance policies results in a huge loss. So does it make sense to surrender one’s policies despite this loss? There could be three broad scenarios possible, depending on how many premiums you have already paid, out of the total premiums payable.

• Early stage: A policy can be surrendered only if it has been in force for three years and premiums have been paid for these years. If you have paid just one or two annual premiums, then you will get back nothing when you exit from the policy. Even thereafter, you will get back say only 25-35% of the premiums paid + bonus accrued, if any. This is for a typical 20-year term policy. The % varies depending on the term and premiums paid.

Now, if you invest this amount + the future premiums in other investment options, you will need to generate around 9-11% p.a. returns to recover the lost premiums and break-even with the insurance policy if you had continued with it.

If you’re confident take a hit and move on!

• Middle stage: If you are somewhere around the middle of the policy, you can either surrender the policy by taking around 50% of the premiums paid + bonus; and invest this and the future premiums somewhere else. But remember that the absolute loss is higher here as more premiums have been paid and time for recovery is less. So, you need to generate maybe around 14-17% pa returns to break-even.

Optionally, you can make the policy fully-paid. Your sum assured will be suitably lowered. And you will back the premiums paid + bonus earned — but only at the end of the original term. Also no fresh bonus will accrue during this period. The net return for this amount works out about 4%. Invest the future premiums in the other options. Here you may have to generate somewhat lower returns of around 12-15% p.a. to break-even on overall basis.

• Late stage: If your policy is just about to mature in three to five years, then it may well be prudent to let it run its course. You can’t do much by saving 3-5 years’ of premium payments.

These are only broad numbers purely for indicative purposes. It’s important that you do a detailed working for each of your policies, before taking any further action.

But, with a GDP growth expectation of 7-10% over the next decade or so, the returns outlined are pretty reasonable especially if you choose equity. If you have the capacity for a little risk, go ahead. After all, there’s no gain without pain right?

Author: Sanjay Matai
Source: Wealth, MoneyControl

New fund offers, worth the money?

WE’RE all familiar with the phrase ‘Make hay while the sun shines’. Apparently the financial world is also familiar with it because that would explain the slew of mutual fund new fund offers (NFO) due to the buoyant mood of the markets.
And because we all love new things, investors have rushed to redeem their crores from a perfectly well performing existing fund to invest an NFO with similar objectives.

But how smart is that? Mutual Fund NFOs are nothing but commencement of a new scheme. They should not be confused with equity IPO usually get huge listing gain. There is no such upside on MF IPO’s. In fact there very well may be a downside. Lets look at it closely:

1. Ignorance is not bliss
One of the major reasons for the success of mutual fund NFOs has been the continued ignorance of an average investor with regards to the NAV. They have all along assumed that if they are getting the units at par ie Rs10, they are getting it cheap. Huge error!

NAV merely represents the market value of the portfolio. It is the book value. Thus when one invests in a mutual fund one is buying the units at the book value — which is Rs 10 for a NFO and could be Rs 15 or Rs 20 or whatever for an existing scheme.

The NAV of an existing scheme is higher merely for the fact that its portfolio has appreciated since the time it built it’s portfolio. Going forward, the returns over a given period of time will be same from an existing portfolio (with a higher NAV) and an identical new portfolio (with Rs 10 NAV). The earlier appreciation of the old fund does not make it expensive vis-à-vis an NFO.

2. Let’s talk numbers now
Say a fund (Old Fund) was launched in Sept 2004. It raised a corpus of Rs 1 crore and allotted 10 lakh units at Rs 10 each. The corpus of Rs 1 crore was invested equally ie. Rs 25 lakh each in Reliance, ONGC, Infosys and Arvind Mills. Over the next 1-year i.e. till Sept 05 all these share prices appreciated and the corpus became Rs 1.49 crores. Accordingly the NAV of Old Fund now is Rs 14.9608.

Now, assume that in Sept ‘05 a NFO is launched. It raises Rs 1 crore and allots 10 lakh units at Rs 10 each. It also invests in the same 4 shares viz. Reliance, ONGC, Infosys and Arvind Mills. The amount to be invested in a particular share is in the same % as in the Old Fund now (This is important, as we have to compare the impact of NAV on the returns and not the impact of the portfolio).

Now we invest Rs 10,000 each in Old Fund and NFO. In Old Fund, we get 668.414 units at Rs.14.9608/unit. And in NFO we get 1000 units at Rs 10/unit.

After one year in Sept 2006, due to appreciation in the share prices, the corpus of Old Fund increases to Rs 1.74 crores and NAV to 17.4669. And corpus of NFO increases to Rs 1.16 crores and NAV to 11.6751. But the investment value in both cases would have increased to Rs 11,675.

Author: Sanjay Matai
Source: Wealth, MoneyControl

When your bank messes up…

GONE are the days when you had to wait in queue to finish your bank work.

These days you have smarter options. You can transfer money, online, check your savings account balance on your cellphone and track the status of your cheque at your local ATM.

Yet banks still mess up. An extra charge, here. A cheque which takes forever to clear. We show you how to address these issues.

Step 1: If you have a complaint, visit the bank’s web site and file it here. Mention your e-mail id, correctly and wait for the bank to revert.

Step 2: If you do not receive a response from your bank or are not satisfied with the response, then file a complaint with the banking ombudsman (BO), a body supported by the Reserve Bank Of India (RBI).

The BO provides speedy solutions to grievances faced by customers from various banks.

What can you complain about?

You can complain if your bank does the following things:

• Does not clear cheques, drafts and bills. Or clears them late
• Refuses to accept without sufficient cause, small denomination notes (like Re 1, Rs 2 etc) or coins. Or if it charges a commission for this
• Delays the payment of deposits into your account
• Refuses to or delays issuing your drafts, pay orders or bankers’ cheques
• Does not stick to the prescribed working hours
• Fails to honour guarantees or letter of credit commitments
• The bank agents fail to provide or delay providing a banking facility (other than loans and advances) that has been promised in writing
• Does not follow the RBI directives that are applicable to rate of interest on deposits in any savings, current or other account maintained with the bank
• Refuses to open deposit accounts without a valid reason for refusal
• Levies any charges without informing you
• Does not stick to RBI guidelines with regards to ATM/debit card operations or credit card operations
• Delays payment of your pension money
• Does not accept or delays accepting amounts, that you pay as taxes
• Does not service you when it comes to investments in Government securities
• Forces you to close your deposit accounts without proper reason or notice
• Refuses or delays to close any accounts
• Does not adhere to the fair practices code as adopted by the bank
• Violates any other directive issues by the RBI in relation to banking or other services

How to file a complaint

• You can file a complaint by on a plain paper and submit it to the ombudsman’s office in your city. Click here for list of offices.
• You can also file it online: access the form.
• There is also a prescribed form for filing a complaint, which is available at all bank branches. However, it’s not necessary to use this format.

Can the ombudsman reject your complaint?

Yes, it can in the following cases.

1. Your complaint seems frivolous, dishonest or is filed without sufficient cause.

2. If you have not done your homework before filing your complaint, or do not have relevant proofs, the ombudsman will not entertain you. So, make sure you have a record of all your communication with the bank

3. There is no loss or damage or inconvenience caused to the complainant.

4. If the office of an ombudsman falls outside the purview of your case, he can reject your complaint. In this case, you must make sure you go to the correct office.

5. If your complaint sounds too complicated to the banking ombudsman, he may ask for elaborate documentation.

List of documents

Submit these along with your complaint:

1. Name and address of the complainant.
2. Name and address of the branch or office of the bank against which the complaint is filed.
3. All facts that support your complaint and if possible, quantify the amount of loss you suffered.
4. If the ombudsman has asked you to comply with some conditions, attach proof of such compliance.

The damages: There’s no cost involved!

Author: Harsh Roongta, Ceo, ApnaLoan.com
Source: Wealth, MoneyControl

Top learning from Sahara fiasco…

Last week, the Reserve Bank of India (RBI) pulled the plug on India’s largest Residuary Banking Company (RBC), Sahara India Financial Corporation. (What happened??)

An RBC is a financial company, which is not really a bank. It’s just that getting a license to set up an RBC is easier than getting a banking license; it calls for fewer regulations and compliances.

So, companies that don’t want to go the banking way opt to be an RBC. In Sahara’s case, they appear to have failed these compliances.

What went wrong according to RBI

• Sahara did not comply with the minimum interest rate requirement. The minimum interest rate that an Non Banking Financial Corporation must offer is 5 per cent per annum on term deposits and 3.5 per cent per annum on daily deposits. If reports are to be believed, some depositors got interest as 1 per cent per annum.
• They did not have the complete details of the agents involved in deposit collection.
• They did not follow all KYC (Know Your Customer) norms. Under these, the company must collect documents like PAN card copy, address proof etc, from depositors.
• They did not inform depositors about when their deposits would mature.

Note: It is essential for RBCs to follow these rules, so that you, the depositor or investor, are protected. Read all rules.

RBI’s verdict

Though initially, RBI put a complete ban on all future deposits, it later toned down the sentence. Now, Sahara needs to wind down its deposit base within seven years. Sahara will also no longer issue fresh deposits that mature beyond June 2011.

With this, once again, the spotlight is on the millions that investors pour into various avenues, without adequate knowledge and research. What’s more disheartening is that most investors and depositors don’t know their rights are.

Now, for those who have their monies locked into Sahara, there’s no cause to worry. The RBI is here to protect the rights of investors and depositors. Even if there had been a complete ban on Sahara to accept any fresh deposits, common investors will not suffer.

But there’s an opportunity to learn, here. Being aware of what’s happening around you will help you to avoid making mistakes with your money. Here’s what I learned: four cardinal rules of investing.

Exercise your rights

Every time you give your money to somebody else, you have a right to know what is going to happen with it. You have the right to see balance sheets, offer documents and other financial documents and ask any question you might have. When you see these documents, look at these four important details of the company finances:

1. Case flow statement: Every company has an annual report with the balance sheet, profit statement and a cash flow statement. A company with positive historic cash flows, is preferred.

2. Revenues: Look at sales/ revenues and see if they are growing at a healthy rate. Compare this with peer companies.

3. Profit margin: Is the company maintaining a steady profit margin? This will tell you if it is controlling costs. Again, compare with peers.

4. Loans: A company with less loans is always better. Imagine you have two friends, one who is always in debt and the other who borrows less and repays fast. Who would you lend to? The answer: obviously, the latter! Same logic for companies.

Now, these are just basic guidelines. It always helps to learn more. Learn the business model, profits, cash flows, the total assets and how much debt they have taken and what are the risks related to the business.

Get real!
Take promises of high, guaranteed returns with a pinch of salt.

If anyone does promise you a high guaranteed return, which is significantly more than what the Government or nationalised banks are offering, try to find out what’s different here.

Ask yourself, ‘Iif I was running a deposit scheme like this how would I be able to guarantee returns of 200 per cent? What is my business model? Is it logical or is it just a scam?’ Don’t forget that the RBI is not liable to protect you, if you behave irresponsibly and lose your money to dubious companies.

Check management credibility
Whom would you give your money to? A company ridden with controversies? So, check for management credibility when you invest.

Read magazines and newspapers, regularly. The Internet has made life easier, too. Look up the company’s name on search engines and read all the information, it throws up.

Check credit ratings
RBCs are required to get a rating from a rating agency like CRISIL or ICRA, without which they cannot raise deposits. So, check the offer document to see the rating. However use this only as a tool to help you decide. It must not be the only basis for your decision. In the past, several Initial Public Offerings (IPO) with excellent credit ratings, have failed.

Play detective!
Being an investor is akin to being a detective who needs all the information. The better you get, the more you will be rewarded. The world of finance is extremely rewarding for those who know the rules of the game. For those who don’t, it’s pretty risky. So, respect your money and keep your eyes and ears open.

Keep smiling. And yes, happy wealth creation!

Author: Yogesh Chabria, GSIFS.com
Source: Wealth, MoneyControl.

Is your credit card making you broke?

A CREDIT card nestles a lot of hidden costs – so if you aren’t careful, your monthly statement can come as a huge shock.

Here is a checklist of reasons why you may incur unnecessary credit card expenses:

You don’t pay the minimum amount due
Whether you do it knowingly or unknowingly, you will end up paying a late payment fee. This fee varies from bank to bank. If you do not pay for two consecutive months, you become a defaulter. Collection strategy then varies, depending on his risk score arrived ad from the amount outstanding, past record, individual profile/ profession. Further transactions will be blocked.

You revolve your balance
Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.

Your payment cheque bounces
You would have to bear a fee for dishonoured cheques. If you go beyond the due date, you become a delinquent case, and your risk profile shoots up. Also, all charges will be applicable – a fee for a bounced cheque, a late payment fee and monthly interest on outstanding amount.

You cross your credit limit
Your credit limit is the maximum amount that you can spend using your credit card, as dictated by your income profile. But should you decide that you need to spend more, the banks are too clever to block further transactions. Instead they let you spend, and then charge you – perhaps as much as 5% on the exceeded amount.

You transfer your balance from other cards
Some banks make an offer where you pay absolutely no interest or a very low interest, but the dream run doesn’t last long. Most banks let you not pay or pay low interest on the transferred amount for a stipulated period of about three months. Beyond that, you start paying the normal interest. So, if you have transferred your balance, pay off the dues within the stipulated time.

Other precautions you can take:

Do not withdraw cash with your credit card
Apart from paying the regular interest of 2.95%, you will also have to pay a one-time fee of about 2-2.5% for making a cash advance. Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn’t belong to the bank whose credit card you hold. Also remember, when you withdraw cash, you start paying interest from there on, as against getting a free credit period.

You forget to pay your annual charges
In case you decide not to use your credit card further and you don’t pay the annual charges, you are in for trouble. Remember, you need to get in touch with the bank and intimate them that you don’t want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date.

Bank	Late Payment (Rs)	Bounced Cheque (Rs)	Overlimit Charges (Rs)	Cash Advance Fee (Rs)
ICICI Bank	30% of min outstanding	250 /cheque	5% on overlimit amount	2.5% on advanced amount
HDFC Bank	150	2% of cheque amount	2.5% on overlimit amount	2% on advanced amount
HSBC	30% of min amount due	200	300 per month	2.5% on advanced amount
StanChart	30% of min amount due	200	250 per instance	2.5% on advanced amount

Source: Moneycontrol

Investing in mutual funds?

MOST of us have an inner rebel. That’s why often fall for the guy mother warned us against. Or continue smoking even when told not to.

So, it’s no wonder that when mutual fund advertisements worth millions of dollars, tell us to ‘Please read the offer document (OD) carefully before investing’, we still don’t! This is understandable; after all it’s a 100-page document filled with jargon. But in the long run, you will be the loser, if you don’t.

The Securities and Exchange Board of India (SEBI) have even come out with an abridged version called the Key Information Memorandum, which stipulates standard sections and disclosures in all ODs.

An OD is critical because it tells you whether your money is in the right hands, at the right place and at the right time. Your financial advisor will have a copy, and the company web site should have it online, too.

If you still don’t want to read the whole document, take the easy way out. wealth scopes out 10 must-reads in the OD.

1. Date of issue
Verify that you have the latest edition of the OD (an OD must be updated once a year, at least).

2. The minimum investment
Mutual funds differ both in the minimum initial investment required, and the minimum for subsequent investments.

For example, equity funds may stipulate Rs 5,000, while institutional premium liquid plans may stipulate Rs 10,000,000 (Rs 10 crore) as the minimum amount.

3. Why invest
The goal of each fund must be clearly defined, from income to long-term capital appreciation. You, the investor, must be sure that the fund’s objective matches with your’s.

4. Investment policy
An OD will outline general strategies implemented by the fund managers. You will learn what types of investments will be included, such as government bonds (with ratings) or stocks, considered appropriate. Be sure to check if it offers adequate diversification.

5. Risk factors
Every investment involves some level of risk. Look for descriptions of the risks associated with investments in the fund (like credit risk, market risk or interest-rate risk) and decide if it matches your risk appetite.

For example, a mutual fund Monthly Income Plan (MIP) invests mainly in bonds and gilts (up to 90 per cent) with a sprinkling of equity(10 per cent) to generate capital appreciation. This is passed on to customers as monthly income.

But remember: it is subject to availability of distributable surplus. In 2004, many mutual fund customers underestimated this market risk and were caught by surprise when the MIPs gave low/negative returns.

They may have been better off with a a Post Office MIP that assures an 8 per cent monthly income payment for its six-year tenure.

6. Past record
ODs contain selected per-share data, which includes the net asset value and total return for different time periods, since the fund’s inception.

Performance data listed in an OD are based on standard formulae established by the SEBI and enable investors to make comparisons with other funds. So investors should check track records over a period of time that matches their own investment horizon but always remember that ‘past performance is not an indication of future performance’.

Additionally, investors must check that the benchmark chosen by the fund to compare its relative performance is appropriate. In addition, investors should keep in mind that many of the returns presented in historical data don’t account for tax. They must look at any fine print in these sections, as they should say whether or not taxes have been taken into account.

7. Fees and expenses
Fool.com quotes: Mutual funds have two goals: to make money for themselves and for you, usually in that order.

Entry loads, exit loads, switching charges, annual recurring expenses, management fees, investor servicing costs — these all add up over time. The OD lists the limits on these fees and also shows the impact these have had on the fund investment historically.

8. Pedigree or vintage?
Who will you be trusting with your money? This section details the education and work experience of the key management of the fund company, including the Chief Executive Officer (CEO) and fund managers. For example, you need to watch out for the fund that has been in operation significantly longer than the fund manager has been managing it.

The performance can be credited to the previous manager. Check the performance of the current manager by looking into his or her past performance with other funds with similar investment goals and strategies.

9. Tax benefits information
Mutual funds enjoy significant tax benefits under Section 23 D and Sec 115. For example, equity funds enjoy the status of being free from long terms capital gains and dividend distribution tax.

A close reading of the tax benefits available to the fund investors will enable them to plan their taxes better and to enhance their post tax returns.

10. Investor services
You may have access to certain services, such as automatic reinvestment of dividends and systematic investment/withdrawal plans. This section of the OD, usually towards the back of the publication, will describe these services and how you can take advantage of them.

Now, you can decide if this mutual fund is for you. So, if you’re an information junkie, you can get more of it from the fund’s annual report, which is available directly from the fund company or with a financial planner.

Go right ahead and rebel against your parents, politicians, the Government, fundamentalists etc. But if you rebel against sound advice then you’re just a rebel without a cause!

Author: Ajay Bagga
Source:Money Control

What Stock Brokers Don’t Tell You!

DO you find yourself quoting proverbs or famous last words when teaching a child something important? You would rather fall back on their instinctive sense and the shared universal meaning.

It is much the same for stock markets. To learn the fundamentals of the market, the easiest approach would be to use often used maxims from our everyday life.

So here are 11 of them. The knowledge behind each is gained from several excellent books on the vast, fascinating subject of stock market investment such as Peter Lynch’s One Up On Wall Street and Beating The Street; Zulu Principle by Jim Slater; and Robert Hagstrom Jr’s The Warren Buffet Way.

The application, however, is entirely mine.

1. No pain without gain
This is the base level fundamental of equity investing. There is a close direct relationship between risk and reward. The higher the reward, the greater the risk. Fairly simple to understand, but it is most difficult to live by.

Where there is profit, there is always risk. The greater the opportunity of profit, greater the possibility of loss.

2. Slow and steady doesn’t always win the race
Gentlemen who prefer bonds don’t know what they are missing! On bonds, there is no return on money; there is only return of money.

Bonds being debt instruments, unlike equity, yield only fixed return. And, with inflation and income tax factored in, there is often no return at all.

(INFLATION METER: Did you know that your expense of Rs 10,000 today will be equal to Rs 46,609 in 2028? That’s because inflation is at 8% today! Use our ‘cost of living ‘ tool to find out how inflation will affect your budgets!)

3. United we stand
Investing in equity shares of companies is risk related because returns are linked to the company’s profits unlike investing in bank deposits or bonds or debentures where the returns are fixed and accrue to investors regardless of the company’s profits.

In the stock market, you are tying yourself to the company’s fortune.

4. It takes all kinds to make the world
Stock market behaviour is not unpredictable as it is commonly believed. It simply depends on human behaviour which, as we know, can never be predicted with any reasonable accuracy.

Hence, we have fluctuations in prices of commodities, things and stocks based on greed, emotions, hopes, fantasies, fear and dreams of millions of people, resulting in opportunities of making money out of such fluctuations!

Find out how one investor lost Rs 35 lakh in the stock markets !

5. Common sense isn’t all that common
Not all common stocks are common. Though equity shares as an investment class is one, each company has a distinct identity and performs differently and, therefore, rewards its investors differently.

6. Ignorance is bliss
Investing is nothing but an arbitrage of ignorance. Investing is basically profiting from pricing and difference in market perception of a given product at a given point of time.

Stock market is one place where the buyer and the seller both think that they are smart in their decision.

7. Elephants don’t gallop, zebras do
Stock prices of big companies with large capitalisations move up or down rather slowly compared to smaller companies because there is not much market ignorance on big companies to capitalise on.

Hence, smaller companies tend to reward its investors more handsomely.

8. Be a braveheart
You need ‘cash’ and ‘courage’ to be an equity investor. If you are prone to panic at losses, remain invested in fixed deposits with banks and government bonds.

If you don’t know who you are, the stock market is too expensive a place to find it out!

9. If you throw peanuts, you get monkeys
Investors make the mistake of not buying good stocks at high prices as also buying bad stocks at low prices. A lay investor tends to buy unsound companies at cheap prices instead of solid companies at high prices.

10. Lose the battle, win the war
Equity investment cannot maximise your income, but it can maximise your wealth. The actual yield by way of dividends on equity shares with reference to their market value is often as low as one per cent on investment.

But capital appreciation in equity values can be insanely high. Ask the initial investors of Infosys or Pantaloons.

Saving for investment is not a punishment. Investing is making conscious choices about how you will use your money. It is not about choosing to live rich or die rich.

It is about how you want you and your dear ones to live during your lifetime and thereafter.

Here are a few more pointers.
i. There is no ‘high’ price or ‘low’ price of a stock. There is only the ‘market’ price.

ii. Absolute price of a stock is not relevant. What is important is whether it is underpriced or overpriced.

iii. You can’t control the market but you can control your reaction to the market.

iv. Intelligent investing is knowing ‘what’ to buy; smart investing is knowing ‘when’ to buy.

v. Your profit is determined by your purchase price and not your sale price.

vi. Don’t ask the price of the stock, ask the worth of the company.

You are ready to go and need to search for a broker. Keep these in mind.
a. Don’t expect your broker to help you to earn ‘for’ you. He is there to earn ‘from’ you.

b. The sub-broker makes money. The main broker makes money. Two out of three making money in a single transaction is not a bad bargain.

c. Never ask a broker whether you should buy a particular stock. It is like asking a barber if you need a haircut!

Source:Money Control

I owed Rs 9 lakh @ age 19

HE grew up in Bahrain and moved to India with almost no knowledge of Hindi. But 33-year old musician and rapper Earl Edgar learns fast.

He was noticed after the release of his first remix — a lively rendition of the song Baar baar dekho – from the album Jalwa 3.

He went on to create rap sequences and arrange music for Bollywood films such as Partner, Cash and Pyaar Mein Twist. He also cut the promo music for the Indian Premier League’s Mumbai Indians. These days, his career is on an upward spiral.

• VIDEO: Earl Edgar raps about the money!
  

But at the young age of 19, Earl bit into a little more than he could chew. He organised a grand musical show and, pretty soon, he ended up with a Rs 900,000 (Rs 9 lakh) debt.

In a candid interview wealth got Earl to reveal how he got out of debt, and jumpstarted his musical career in the real world where competition in tough and godfathers are scarce.

In debt@19
I started my career early. When I was 19, I enrolled myself for a course in Electronic Engineering. To make ends meet I started working and couldn’t complete the course.

So I joined a music institute in Nashik which organised shows and cultural activities for children. The work was tough and to add to the misery one of the shows we planned sold badly. Consequently, I ran into a debt of Rs 9 lakh.

4 years of hard work!
I shifted base to Mumbai. I took up singing in a hotel, which is something I still do. They supported me during those times and still do. I earned Rs 3,000 for each show.

Around the same time, I began teaching music at Jamnabai Narsee School, in the northwestern suburbs of Vile Parle, Mumbai. I earned Rs 10,000 per month. I also conducted recordings, which fetched me about Rs 10,000 monthly.

Working hard and cutting down on expenses helped me pay back the whole amount in four years.

The phone call
I was in Nashik, performing at a function when I got a call from Times Music; they wanted me to do a song for Jalwa 3. My friend who was with Times Music at that time referred my name to them. That one phone call placed me on the map, of the music industry.

The song they wanted me to do was the old time hit Baar baar dekho from the 1962 hit China Town. When I sat down for the song, it struck to me that the song had to be constructed from scratch.

So, I used the opportunity to be creative. Eventually, I added English sequences to the song, worked on all the Hindi bits, all the rap sequences, and I even sang the chorus!

CA zindabad!
My chartered accountant manages my money. She advises me about the worthwhile mutual funds and equities, to invest in. I trust her completely because I really don’t have the time to monitor where my money is going and how it is managed.

Source: Money Control

For the young and restless, equity rules!

We ask working professionals how they manage their money. As part of this series, we spoke to two young women and got wealth experts to evaluate their financial plan of action.

Is their money working hard, enough? Let’s find out!

MANASI Deshmukh, 25, an HR professional with a BPO company in Mumbai, saves Rs 15,000 from her take-home, every month.

She invests this amount in ’safe’ avenues such as National Savings Certificate (NSC), Public Provident Fund (PPF), infrastructure bonds and life insurance policies offered by the Life Insurance Corporation.
“I usually invest at the end of the (financial) year, when it’s time to save tax,” she confesses.

Maya Kumar, 27, another young turk from the IT sector, saves around Rs 17,000 per month. She predominantly invests in PPF. She also puts Rs 5,000 every month, in a bank recurring deposit. Maya’s total investment works out to approximately Rs 150,000 (Rs 1.5 lakh) per annum. The rest, lies idle in her bank account.

Is your money wasting time in a bank?
Yes! Here’s why. “Though the recurring deposit is a good saving habit, the interest you receive on it, may not be enough to cover inflation,” says investment consultant Sandeep Shanbhag. Both Manasi and Maya should invest their money, aggressively, in equity.

“The only time you can take advantage of equity without sweating at the risk level, is when you have at least 10 to 15 years before you retire and no family responsibilities ,” he adds.

Why equity rules
Both girls have parked a significantly large amount of money, in a savings account. According to investment advisor Ajay Bagga, Maya and Manasi’s year-end planning strategy is more of a tax minimisation plan. Instead, they need to invest, keeping their long-term financial goals in mind.

“Sure, we need to keep some amount in the bank for daily expenses and emergencies. But we must invest the rest in short-term mutual fund schemes. These schemes offer higher returns. And you can sell them any time,” advises Shanbhag.

Ajay recommends a portfolio of 90 per cent equity mutual funds and 10 per cent in fixed return products such as PPF, recurring deposits, bank deposits.

Save tax. But make money!
The investment favourites to save tax seem to be: NSC, PPF and LIC. But Equity Linked Saving Schemes (ELSS) are a better bet. Here’s why.

The returns for NSC are 8 per cent, and this is taxable. Equity, on the other hand, yields anywhere between 15 to 18 per cent, when held over a long period of at least five to seven years. What’s more, the returns are tax-free!

Infrastructure bonds are not such a good investment either, according to Ajay. “The returns have fallen to approximately 5 to 5.5 per cent. Earlier, the attraction was that they were tax-saving instruments,” he says.

Section 80C now allows investors the freedom to choose any investment of their choice, up to Rs 100,000 (Rs 1 lakh) per annum. So, infrastructure bonds are no longer an attractive option, because they yield low returns, and the interest is taxable.

Do I really need insurance?
Ajay suggests that Manasi reevaluate her insurance coverage and see if she really has dependents whom she needs to cover. Did she buy the policy because her agent insisted? Or merely because she wanted to buy tax? Ideally, she must try switch to a low-cost term insurance policy, which is offered by all companies, but which agents usually do not sell, because the commissions on these are pretty low.

5 wealth rules for the young and restless!
If you are in your early 20s with no dependents and earn more than you need to spend on essentials, follow these five wealth rules.

1. Invest 90 per cent of your money in equity mutual funds.

2. Opt for a Systematic Investment Plan (SIP) plan to help you save, regularly. With SIP, the benefit is that you will have to keep aside a monthly amount.

3. Invest in short-term mutual fund schemes (less than three years). The returns you earn from these schemes are higher and you have the advantage of selling whenever you please.

4. Choose a low-cost term insurance policy, which is the cheapest form of insurance.

5. Choose ELSS investments; it helps in tax-saving.

Source: Money Control